The IPO Is Dead, Long Live The IPO

By Margot Patrick

After a week marked by several pulled or repriced initial public offerings across the globe, including the cancellation of two jumbo deals in London — for travel reservations company Travelport and U.K. retailer New Look – three companies announced plans to float their shares on Monday morning.

The three trend-buckers certainly got the attention of journalists who’ve been opining on why IPOs are doomed to fail amid falling stock markets and worries over the strength of the global economic recovery.

Now the companies just need to convince potential investors that they are a better bet than the last set of IPO wannabes, as well as any rival companies that may be trading on cheaper valuations at the time the new shares are priced in March.

IPO investors have been moaning vociferously that private-equity owners are trying to unload indebted companies at their expense, expecting them to buy stocks that seem almost doomed to decline from Day 1 and to have problems down the road from their hefty debt repayments. It seems fund managers are reluctant to trust private equity players. They want to see less debt, more upside and calmer markets before they even consider buying into private equity-backed companies.

In contrast, Monday’s offerings, with only light private equity involvement and debt, might prove more alluring.

The biggest of Monday’s launches is Promethean World, a maker of educational “interactive display systems,” the modern equivalent of the chalkboard. Boasting 18% market share and a 33% rise in earnings last year, the company wants to raise about £250 million to cash out 25%-shareholder Apax Partners and pay down debt. While investors have been cool, if not outright hostile, to the idea of paying for private equity owner exits, Promethean hopes to convince them with its plans for growing its business across the world, and with the fact its founder, 50% owner Tony Cann, and existing shareholding-managers will remain invested.

People close to the deal are also quick to point out that it wasn’t Apax’s decision to sell, since it doesn’t even have a seat on Promethean’s board, and that the company will be fully debt-free after the float.

The next in the queue, Supergroup Holdings, wants to issue £125 million in new shares to spread its trendy Superdry polo shirts and hooded sweatshirts further across the U.K. and into areas such as the Far East, Middle East and South Africa. It’s also aiming to increase sales of its womenswear, which is only about 30% of the business.

The company, which draws heavily on Japanese and American culture and street fashion in its styles, says its sales nearly doubled in the year to Jan. 3, and that its gross margins are among the highest in the U.K. retail sector. Oh, and it’s also debt free, which should appease investors who were alarmed by Travelport and New Look’s relatively high ratios of debt to earnings, which relied on strong cash generation even if the economy tanked.

Still, Supergroup is very much a retail story, and investors may want to see more evidence the U.K. consumer is willing to keep spending for England this year.

Meanwhile, EMIS Group, a software company that helps doctors keep track of patients’ medical records, is aiming to raise £50 million in a share placement on London’s junior market valuing it at around £200 million. It wants the money to roll out a new product and to make potential acquisitions.

With no mention of debt or private equity in its announcement, the company may actually get judged on its own merit.

These factors, as well as valuation, are all-important for IPO hopefuls. Anyone reckoned to be greedy will get short shrift from investors, many of whom have had their fingers burnt by the disappointing post-IPO performance of a raft of private equity-backed businesses.

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